Brexit and IP Practice: What does it mean?

As we all know, Brexit happened yesterday (I guess depending on your time zone).  I am disappointed by the vote, but that is democracy.  It was relatively close, but over 17 million voters unhappy with the status quo is significant.  I am not a European IP attorney, but I thought it might be helpful to collect some of the links to advice concerning the IP fallout from Brexit.  Here are a few: 

Freshfields Bruckhaus Deringer

Carl Oppendahl

Afro IP via Darren Olivier (Brexit implications for Africa)

Fashion Law Blog

Olswang

Foley & Lardner via National Law Review

Kluwer Patent Law Blog

Shepherd Wedderburn

Bird and Bird

World Intellectual Property Review

UK Summer Budget

Summer Budget 2015 – summary of the IP angles
 The Summer Budget took a few sideswipes at IP tax in passing - the biggest issue being likely to be the removal of amortisation for acquired goodwill (and so any unregistered IP included therein, probably) and customer-related intangible assets. There were some good points as well, although those were mostly in the realm of general improvements in the corporate tax field.

General points - for all companies
Firstly, the government focus on reducing corporation tax continues – so that tax cost (not just for IP-focussed companies) will lower from the current 20% to 19% in April 2017 and 18% in April 2020 (ie: just in time for the next election …)

The Annual Investment Allowance – the amount of annual capital expenditure on plant & machinery that can be deducted from taxable profits in full immediately, rather than drip-deducted over 20-30 years – will be set permanently at £200,000. It's been ping-ponging from £25,000 to £500,000 and various points in between over the last few years, so settling it down is useful. This will benefit companies spending money on computers and other such equipment (and those spending more than £200,000 a year shouldn't forget the R&D capital allowance as well).

Companies acquiring goodwill and customer-related intangible assets (undefined) will no longer be able to deduct amortisation for tax purposes – this is taking things back to the position before April 2002, for acquisitions on or after today (8th July 2015), unless there was a binding obligation to purchase entered into before 8th July 2015. The information note suggests that the government has suddenly noticed that this creates an incentive for companies to acquire the trade & assets of another company, rather than the shares in that company, and seems to think that this is somewhat unreasonable.

That line of thinking overlooks the fact that it can often be more expensive in tax terms for the vendor to sell the trade & assets of a company rather than the shares, particularly where the goodwill is actually worth something … and amortisation of goodwill was hardly accidental in the 2002 intangibles rules, as those rules specifically allow for a deduction even where the accounts don't include amortisation for goodwill.

What exactly is meant by "customer-related intangibles" hasn't been fully defined – could be anything from customer lists to trademarks (and the Budget papers refer to "assets linked to the business’ reputation and customer relationship", so probably will include trademarks).

RDEC – correcting unintended consequences
The R&D expenditure credit for large companies is to be modified to make it clear that universities and charities are not supposed to be claiming it – they apparently have been, presumably in pursuit of the repayment available for loss-making companies. The large company super-deduction relief was not available to universities or charities, either, so this is at least consistent, and follows the focus on trying to ensure that the reliefs are targeted at industrial R&D.

Note: this does *not* affect university spin-outs – it's addressed to the independent research of universities and any subcontract work that they might try and claim for as well. Spin-outs are separate entities and unaffected by the change.

Venture capital investments – refocussing The venture capital reliefs (such as EIS, SEIS, VCT) are to be reshaped to make it harder for businesses to claim the relief without certain types of activity and function, and also making it harder for existing shareholders to get EIS/SEIS on additional investments in the same company. The business-focussed restrictions seem to be largely sparing knowledge-intensive businesses, giving higher qualifying thresholds.

Non-tax – what might be coming along
The main measures in the Summer Budget were tax related, but there was also the announcement of a "productivity plan", which will be published with measures to "encourage long-term investment in economic capital, including infrastructure, skills and knowledge" - presumably including from IP-related matters in there somewhere.

There was also an indication of investment "in 6 Next Generation Digital Economy Centres over 6 sites (London, Swansea, Newcastle, Nottingham, York and Bath)" and the "government will invite universities, LEPs, businesses and cities to work with central government to map strengths and identify potential areas of strategic focus for different regions through a series of science and innovation audits" (no indication of any new money for that …).

Supply of commercial research: Imperial College VAT recovery claim upheld

This blogger will not even pretend to understand the subtleties of Imperial College of Science, Technology & Medicine v Revenue & Customs [2015] UKFTT 0033 (TC), a United Kingdom First-Tier Tax Tribunal decision of 22 January 2015 which has recently come to his attention. Is looks, however, as though it might be of interest to the research and development side of the British IP sector, since it involves a claim for repayment of Value Added Tax that had been paid by leading academic research institution Imperial College, London, as long ago as 1973 and as recently -- if that be the right word -- as 1994. According to the short summary in the subscription-only Lawtel note,

The Revenue had approved a retrospective partial exemption special method with a university outside its agreement with the Committee of Vice-Chancellors and Principals Guidelines regarding interpretation of the law concerning VAT within the university context. The exemption method was in respect of claims for repayment of residual input tax as a proportion of overhead costs incurred by the university's academic departments on the supply of commercial research. The approval was not ultra vires and the Revenue was bound by the exemption method to repay the university's claim, subject to the university satisfying the appropriate evidential burden.

Knowing how precious is any sort of revenue to research institutions, this blogger wonders whether other colleges may also be able to avail themselves of this ruling, or whether it is so fact-specific to Imperial that it will be of little assistance to anyone else.

UK patent box "watered down" -- but with a spot of grandfathering

"George Osborne waters down flagship controversial tax break" is the strident headline of this Guardian post by Simon Goodley, subtitled "Patent boxes allow firms to pay much lower taxes on profits from patented inventions, but critics say it gives UK too much of a fiscal advantage". According to this article, in relevant part:

"George Osborne has watered down one of his flagship policies following a long-running dispute with Germany over a controversial UK tax break. ...

The incentives were introduced last year to encourage hi-tech businesses to commercialise their intellectual property in the UK by charging just 10% tax on the resulting income. But Germany led numerous countries in arguing that the regime encouraged artificial shifting of profits to avoid tax elsewhere.

Osborne described the new agreement as “a great deal for Britain” that protected the UK’s vital scientific research while making sure there were international rules that stop aggressive tax avoidance. It would involve the UK winding down its patent box rebates and joining other OECD countries in only granting tax breaks for patents directly tied to research and innovation at home.

Germany’s finance minister, Wolfgang Schäuble, said: “We have reached an important agreement on patent boxes. Preferential tax treatment of intellectual property must be dependent on substantial economic activity. More and more countries are speaking out against allowing too much leeway for large multinationals to minimise their taxes. Just because something is legal, does not mean it is fair in tax terms. Multinationals must contribute their fair share to public budgets – just like any other company has to.”

The Treasury denied it had performed a U-turn on the issue, although it has previously defended its original policy ... [and] countered that it had won important concessions including so-called “grandfathering”, which will allow intellectual property within existing regimes to retain tax benefits until June 2021".

While the notion of the patent box will continue to attract support, not least among patent-exploiting tax-payers, it would be sad if countries were to engage in an unseemly rush to offer the lowest rate for the sake of attracting the relocation of patents alone: tying the tax break to patents grown within the jurisdiction is therefore a wise proposition.  

Mike Mireles' posts on US thinking about patent boxes can be found here and here
"Death of a Travelling Patent Box" by Rob Harrison can be accessed here
Rob's post on the OECD report which gave the UK's patent box scheme a reasonably clean bill of health is here

Thanks go to Chris Torrero for spotting this item

Education to combat piracy: great idea, but is there a metric?

I received this media release from the UK Government yesterday. I'm puzzled as to why it is embargoed till 00:01 on Saturday morning [if you're wondering, I wrote this piece yesterday afternoon and timed it to go off at 00:01] and intrigued as to what the word "today" means in the first line of the text. Presumably the Government's welcome must have happened some time in the 59 seconds available.  Anyway, this is what is says:

EMBARGOED: NOT FOR PUBLICATION OR BROADCAST UNTIL 00:01 SATURDAY 19 JULY 2014 

NEW EDUCATION PROGRAMME LAUNCHED TO COMBAT ONLINE PIRACY 

Government today welcomed a new industry scheme, Creative Content UK, which will promote legal entertainment online and warn Internet users whose connections are being used to illegally share films and music. 

Business Secretary Vince Cable and Culture Secretary Sajid Javid revealed the UK’s creative industries and internet service providers (ISPs) have agreed the joint scheme. This will aim to raise awareness of copyright by informing those whose internet connections have been used to illegally share copyright material and help them find compelling, legal alternatives. 

The Cabinet Ministers also revealed the scheme would be supported by a joint creative industry and Government three-year education campaign towards which the Government is contributing £3.5 million. 

The campaign will help to reduce online copyright infringement, raise awareness of the benefits that copyright brings and promote the use of legal digital content.

This new initiative follows a similar partnership between the movie and music industries and ISPs in the United States. The  Center for Copyright Information was established to help direct consumers to the growing array of legitimate online creative content and send out alerts to ISP subscriber accounts that have been used to illegally share films and music.  

Speaking at the Spotify offices in London, Vince Cable and Sajid Javid outlined the importance of tackling infringement and intellectual property crime and working together with businesses to crack down on online piracy which is estimated to cost the global music industry alone more than £7 billion. Business Secretary Vince Cable said: 

“The creative industries in the UK are one of our brilliant global success stories. We have unrivalled creativity – from record breaking musicians to box office films - that excite and inspire people all over the world. Yet too often that content is open to abuse by some who don’t play by the rules. That is why we are working with industry to ensure that intellectual property rights are understood and respected. Education is at the heart of this drive so people understand that piracy isn’t a victimless crime - but actually causes business to fail, harms the industry and costs jobs.” 

Culture Secretary Sajid Javid said: 

“Copyright is one of the foundations the UK economy is built on.  Our creative industries contribute £8m to the UK economy every hour and we must ensure these businesses can protect their investments. The alert programme shows industry working together to develop solutions to this threat to our creative industries.  It will play a central role in raising awareness of copyright and pointing people toward legal ways to access content, and I welcome this effort." 

Commenting on the announcement of the programme, Chris Marcich, President and Managing Director EMEA of the Motion Picture Association (MPA) said: 

"It is fantastic that the UK creative community and ISPs have come together in partnership to address online copyright infringement and raise awareness about the multitude of legitimate online services available to consumers. We are also grateful to the UK Government for backing this important new initiative. This is just one piece of the overall approach to tackling illegal online infringement and promoting the importance of copyright. This will enable consumers to receive the best possible user experience and sustains the UK’s creative community and economy, incentivising the creation of new movies and other creative content.” 

Geoff Taylor, Chief Executive of the BPI said: 

"It's a wonderful time to be a music fan - you can listen to almost any song ever released, instantly, wherever you are. But not everyone is familiar with all the different ways to do this - whether for free or from a paid service - while at the same time making sure the artist is also fairly rewarded.  This landmark initiative marks the first time that entertainment companies, broadband providers and the Government have come together in a major campaign to engage consumers through their passion for music, film, TV and other content and to support them in enjoying it safely and legally online. It should mark a real step forward for digital entertainment in the UK." 

The creative industries sector contributes £71.4 billion towards the UK economy and is estimated to support around 1.68 million jobs.

Against the contribution of £8 million per hour by the creative industries, a Government contribution of £3.5 million over three years does not sound hugely generous, particular if one surmises that online piracy is likely to drill a far larger hole in the public purse through loss of revenue in respect of income tax, corporation tax and value-added tax.

It would be great to know how the costing of this programme has been calculated, and how its cost-effectiveness will be measured.

Authors' earnings: some depressing data, but is there hope ahead?

With apologies for an element of cross-posting to readers of the copyright-focused 1709 Blog, this blog also reports on the survey on authors' earnings commissioned by the Authors' Licensing and Collecting Society (ALCS) in the United Kingdom from Queen Mary, University London's Phillip Johnson, Johanna Gibson and Gaetano Dimita).

The survey, What Are Words Worth Now? A Survey of Authors' Earnings, gives a non-too-encouraging picture of what an author might expect if he or she decides to live on income comprised of royalty revenue. You can read the report (12 pages) here. Among its findings, the report confirms that earnings derived from the digital commercialisation of authors' works are on the increase, but that overall incomes are coming down: the proportion of professional authors who earn a living solely from writing has fallen from 40% in 2005 to just 11.5% by 2013.

This blogger suspects that this figure may pick up a bit as more authors opt for self-publishing models and online delivery, while more readers use the internet for finding, selecting, buying and reading works, but there is a limit to the extent to which these efficiencies will compensate for the traditional ways of bringing books and their purchasers together, and entire categories of work such as interactive children's books and coffee-table books are unlikely to see any meaningful benefit at all.

Creative industry tax reliefs: have you checked out the HMRC website?

In the UK, Her Majesty's Revenue and Customs has recently revised its web page on Creative Industry Tax Reliefs. According to the rubric:

"Creative industry tax reliefs (CITR) are a group of 5 Corporation Tax reliefs that allow qualifying companies to claim a larger deduction, or in some circumstances claim a payable tax credit when calculating their taxable profits.

These reliefs work by increasing the amount of allowable expenditure. Where your company makes a loss, you may be able to 'surrender' the loss and convert some or all of it into a payable tax credit.

Film Tax Relief (FTR) was introduced in April 2007 and 2 additional reliefs were introduced in April 2013. These are Animation Tax Relief (ATR) and High-end Television Tax Relief (HTR). A fourth relief for Video Games Development was introduced from 1 April 2014. A fifth relief for Theatre Tax Relief is to be introduced in Autumn 2014".

This web page, which is full of links and useful information, explains who can claim the reliefs, and how and when to claim. If you are creative, pay UK tax and either run at a loss or are a big spender, it might be worth taking a careful look ...

A spoonful of sugar helps the taxation go down ...

Earlier this summer, in  Trustees of the Mrs PL Travers Will Trust v HMRC [2013] UKFTT 436 (TC), 14 August 2013, a First-tier Tribunal in the UK found that whether copyright royalties payable to trustees were taxable as capital or income depended on an analysis of copyright ownership in the light of trust law principles. The Tribunal also considered what constituted accumulation of income, where royalties were being exploited.

Curiously, in reaching its decision the tribunal judges had to refer to a line of Scottish cases relating to mineral rights. This reflects the fact that there are not many cases on the tax and trust treatment of copyright. This decision is therefore likely to be a useful reference point for trustees who are holding copyright and for the executors of literary estates as well as their advisers.

Cultural note: the P. L. Travers in this case is not as well known as her famous literary creation, this being none other than Mary Poppins.